Making the Just Transition Just

Why labor rights must be at the center of green industrial policy

Mar 07, 2025

Last month, I spoke to European trade union leaders at a joint meeting of the European Trade Union Confederation (ETUC) and the European Economic and Social Committee's Workers' Group about the urgent need to place labor at the center of Europe's green transition. In 2022 I also gave a talk to the Labour7 group, comprised of the trade union confederations of the G7 countries, at the G7 meetings in Berlin, Germany, and the previous year I had the honor of giving the annual lecture to the International Labour Organization. These discussions are more important than ever with labor’s share of global income in steady decline, and the need for working people to have a stronger voice in the design of our economies—not only the fight for a more equitable distribution.

The discussion at the ETUC highlighted a crucial truth: the concept of a "just transition" has become a popular buzzword in policy circles. But history shows us that transitions are never automatically just – they must be negotiated and fought for. Without putting labor at the center of green industrial policy, there won't be anything just about it.

The evidence of what's at stake is stark: labor's share of global income has been steadily declining. According to the International Labour Organization, the labor income share declined globally by 0.6 percentage points between 2019 and 2022, continuing a longer-term decline of 1.6 percentage points between 2004 and 2024. If that percentage share had merely remained at 2004 levels, workers would have $2.4 trillion more in their pockets in 2024 alone. This isn't because capital has become more innovative or entrepreneurial. It reflects a massive capture of income by capital at the expense of labor.

Consider Silicon Valley: the epicenter of the last global technological revolution. As I explored in my book “The Entrepreneurial State: debunking public vs. private sector myths”, and in my most recent post AI for What?, the technologies that enabled the rise of artificial intelligence came from public investment, with public institutions like the US Defense Advanced Research Projects Agency (DARPA) or the European Council for Nuclear Research (CERN), leading the way in the most high-risk capital intensive phase. What would Google be without the DARPA-funded internet? What would UBER be without the US Navy-funded GPS? What would Apple be without the CIA-funded touch-screen technology and DARPA-funded voice assistant, Siri?

AI research continues this pattern of public-investment de-risking early stage development. DARPA provided instrumental early-stage funding for critical components of today's AI systems, including computer vision, speech recognition technology, autonomous robotics, and neural networks. The DARPA explainable AI program launched in 2015 pushed companies like Google and Facebook to develop their own ‘explainable’ systems, while DARPA also coordinated a massive $2 billion "AI exploration" program under its AI Next initiative, continuing the pattern of public investment creating the foundation for private profit.

Yet while the risks of that initial investment were largely held collectively, the rewards for that investment have been largely privatized - creating a tech-billionaire class in the US predicated on the enclosure of the digital commons, hiring up public-sector talent, and extracting excess profits through 'algorithmic attention rents'. As I argue in my 2022 article "Collective Value Creation: a new approach to stakeholder value" in the International Review of Applied Economics, we need a better understanding of how value is created collectively — not only by business but also by government and civil society. This reframing is essential because it challenges the conventional view that businesses alone create value while governments merely facilitate or correct market failures. By recognizing the collective nature of innovation and value creation, we can see why an equitable distribution of benefits should follow, rather than allowing a small group of private stakeholders to extract most of the value from publicly funded innovations.

We're now at a critical juncture with massive public investments flowing through programs like the U.S. Inflation Reduction Act (IRA), NextGenerationEU, and national recovery plans. But unless we embed strong social conditionalities into how this money is spent, we risk repeating past mistakes. The financialization of the modern economy has led to over $7 trillion being spent on share buybacks globally, boosting stock prices and executive compensation rather than funding productive investments, worker training, or innovation. As Dani Rodrik and I argue in our paper on industrial policy conditionalities, it's not enough to have green conditions – we need legally binding obligations that ensure these investments deliver for workers and communities.

The U.S. CHIPS Act shows how we can do better: its $300+ billion in semiconductor investments came with clear conditions – no share buybacks, requirements for improving working conditions and wages, and mandates for energy-efficient supply chains. These advancements didn't happen in a vacuum - they had to be negotiated, including by organized labor. Similarly, with the green transition, the United Auto Workers (UAW) strike against the 'big three' automakers — Ford Motor Company, General Motors, and Stellantis – was pivotal in shaping how the IRA delivered for workers.

As Damon Silvers and I argued in our Foreign Affairs piece, "How to Make the Green Economy a Just Economy," the UAW strike challenged the false binary of good jobs versus climate action. The union forced the inclusion of EV and battery production in new contracts, demonstrating that the decarbonization of the auto industry can create good jobs. The strike's success has inspired unionization efforts at non-union automakers across the American South, showing how worker power can shape the green transition. As we pointed out in our 2023 article for Project Syndicate, when UAW picketers in Toledo, Ohio, chant 'No justice, no Jeeps,' policymakers should recognize the critical subtext of that message: 'No justice, no transition.'

However, it's important to note that these conditions have been weakened in implementation. The IRA's social provisions were only preferential, not mandatory requirements with legal enforcement mechanisms. Conditionalities need to be built directly into contracts with clear financial and legal ramifications, or they risk being overlooked in delivery.

Around 5% of EU employment remains in highly polluting industries that will need to transition. While public funding is crucial for retraining these workers, businesses themselves must also contribute. As I argue in my paper for Oxford Open Economics “The Inclusive Entrepreneurial State: collective wealth creation and distribution,” this isn't just about publicly funded training programs – it's about embedding social rights and labor protections into the core of our economic transformation.

This transition also needs to be global in scope. As we argued in our report for the G20 Group of Experts to the Task Force for the Mobilization Against Climate Change, which I co-chaired alongside Vera Songwe, a just transition must consider global supply chains and the nature of the global economy as fundamentally interconnected. For example, while the EU's Carbon Border Adjustment Mechanism (CBAM) aims to reduce carbon leakage, it could simultaneously reduce income in low- and middle-income countries by nearly $6 billion due to projected export declines. A truly just transition must address these global equity concerns.

We need a stronger vision for the workers' movement that extends beyond manufacturing to all sectors. The reality is that services employ significantly larger numbers of workers in the EU – with ETUC estimates showing about 100 million in services versus 36 million in manufacturing. Yet union density is typically much higher in traditional industrial sectors. Employment in services is also typically lower paid than industrial employment. Just as we need an all-sector approach to industrial strategy, we must apply social conditions and strengthen worker representation across the entire economy, particularly in growing service industries where labor rights protections are often weaker.

Just as we need an all-sector approach to industrial strategy, we must apply social conditions across the entire economy. The approach I developed with Leilani Farha in our report, “The Right to Housing: a mission-oriented and human rights-based approach,” for the Council on Urban Initiatives, which I co-chair, offers a template: thinking horizontally about human rights and social protections across all sectors. This means concrete commitments in housing, healthcare, and labor rights built into every investment decision.

One key policy solution is strengthening worker representation in decision-making bodies, including corporate boards. As our research with Dani Rodrik on industrial policy conditionalities demonstrates, successful models include Germany's codetermination system, where workers hold seats on company supervisory boards. In the German steel sector, for example, public bank KfW made loans conditional on both environmental improvements and worker participation in the transition planning. These structures help ensure that the benefits of green transition investments are shared with workers, rather than being captured primarily by shareholders. Other examples include Denmark's effective use of tripartite governance models that bring together government, business, and labor to collaboratively design just transition policies, as highlighted in the “Green and Just Planet” report for the G20 Task Force for the Global Mobilization Against Climate Change by ensuring that workers have not only a voice in the process but actual power in the governance of transition efforts.

This isn't about choosing between climate action and workers' rights – it's about recognizing that we can't achieve either without the other. A just transition requires both green and social conditionalities across all sectors, ensuring we socialize both risks and rewards through smart public financing. This requires building a new social contract with labor at the center - workers shouldn't be an afterthought but rather part of the foundations around which economic systems are designed.

The market is not some natural phenomenon – it's an outcome of how we govern business, public institutions, and labor relations. By embedding strong social contracts into our industrial policies now, we can ensure this historic wave of green investment builds an economy that works for both people and planet.

Making the Just Transition Just

Why labor rights must be at the center of green industrial policy

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